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BFCSA: Superannuation & Derivatives - APRA knows RISKS are "friendly" AUDITORS and zero supervision

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http://www.apra.gov.au/super/documents/guidance-audit-report-derivatives-final.pdf

 

Ref No: Audit Report 2009/10
21 December 2010


Guidance: Superannuation trustee obligations when using derivatives

In response to general enquiries, the following additional guidance is provided to Trustees who use Derivatives.


Prior to the introduction of the Superannuation Safety Amendment Act 2004 (SSFA), Superannuation Circular II-D-7 Derivatives i set out the requirements for APRA- regulated Trustees (including Pooled Superannuation Trusts (PSTs) to have a Derivative Risk Statement (DRS) in place which detailed the use of derivatives in the fund(s) and the manner in which the risk of such use was managed.

 

Subsequently, specific requirements were set out in the SSFA detailing how a Trustee should manage risk, and in particular, the risks to the investment strategy relevant to the fund and the risks to the fund’s financial position.

 

Section 29P of the Superannuation Industry (Supervision) Act 1993 requires a Trustee to manage its risks through the mechanism of a Risk Management Plan (RMP).   An RMP should set out the matters that a DRS would previously have addressed.


While a DRS is still relevant, Trustees have the alternative option of obtaining an annual written notice from their investment manager(s) which confirms that they have risk management processes in place in relation to the use of derivatives and the purposes for which they are used. The information to be included in such a notice is probably already available to the investment manager (although it may not be in a standardised format).

 

The guidance section of the Approved form of Auditor’s Report outlines the auditor’s obligations when checking for compliance as follows;


‘the requirement for the auditor to check compliance with r. 13.15A of the SIS Regulations and the guidelines for preparing Derivative Risk Statements (DRS) issued by APRA in Superannuation Circular II.D.7 Derivatives has been removed.

 

As with other types of investment risks, managing risks associated with a licensee’s investment in derivatives should be integrated into the licensee’s risk management framework and more specifically addressed in the RMP’.

 

i Superannuation Circular II.D.7 Derivatives was replaced by Superannuation Prudential Practice Guide (SPG) 200 Risk Management in August 2010. Refer to paragraph 16 and 17 of SPG 200 for guidance on derivatives.

 

 

 

 

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